Employment and Social Situation Quarterly Review: Signs of recovery on EU labour market, but social costs of crisis still high

The new EU Employment and Social Situation Quarterly review (summer 2011) released by the European Commission today shows that the EU labour market is recovering slowly but unevenly across the Member States. Employment has improved since the second quarter of 2010, but significantly less than economic output, while job losses have been concentrated in the lower-middle end of the wage spectrum. The slight progress in unemployment mainly benefited countries that already have a lower than average unemployment rate. Job losses throughout the crisis have been concentrated in the lower-middle range of the wage spectrum.

Has the EU labour market finally recovered?

The EU labour market is recovering slowly and unevenly. Although the EU has been out of recession since mid-2009, latest trends point to a rather jobless recovery, due to the persisting uncertainties about the economic and fiscal situation of some Member States. On a yearly basis, economic output growth picked up by 2.6 % by the first quarter of this year, while employment increased by only 0.3% (Chart 1).

Chart 1: GDP and employment growth in the large Member States

What are the main drivers of the better employment situation?

Employment has improved since the second quarter of 2010, but grew more slowly than economic output. Moreover, the increases in employment are only due to part-time and temporary jobs: permanent employment was still declining at the end of 2010, even though at a slower rate (Chart 2). As often in the past, temporary and part-time contracts lead the business cycle, but at the same time their concentration may cast some doubts about the quality of the recovery and the uncertainties that businesses are facing. During the recession as a whole, job losses have affected workers earning lower-middle wages strongly, particularly in the manufacturing and construction sectors, while higher paid jobs have continued to increase, in knowledge intensive services for instance (Chart 3). There are, however, strongly different national patterns of adjustment.

Unemployment decreased to 9.4 %, but this benefited mostly Member States which already had a lower than average unemployment rate, such as Austria, the Netherlands and Luxembourg. Conversely, it has remained high in Spain, Latvia and Lithuania, and even increased further in Greece, Portugal and Hungary. The unemployment rate, for both women and men, had broadly stabilised at the beginning of this year, and decreased in April to 9.5% for women and to 9.3% for men, widening slightly the gender gap in favour of men again (Chart 4). Overall, the effects of the crisis remain more pronounced for men, who still account for 60% of the total increase in unemployment since March 2008, and whose long-term unemployment rate nearly equalised that for women. More men than women lost a job, while the increase in high paying jobs was even more marked for women (see also Chart 3).

What about the youth and long-term unemployment?

The labour market for youth has been improving for some time; however the overall impact of the crisis on young people remains significant. Unemployment still affects 20.3% of young people who are active in labour market, and remains a major challenge in nearly all Member States, together with an increased risk of long-term unemployment (at around a 6% level in the fourth quarter of last year). Long-term unemployment, although growth slowed down by the end of last year, still affects 4 % of the EU labour force (Chart 5), with the rate reaching nearly 8 % or more in Ireland, Latvia, Lithuania, Slovakia and Spain. Even if the overall trends during the last year points to a slight recovery of the labour market, long-term social risks are apparent, especially for specific sub-groups, including young people, migrants and low-skilled.

Chart 4: Unemployment rates for the EU by gender, young and total

Chart 5: Long-term unemployment in the EU and selected Member State

How affected are other groups of workers?

The labour market has also started to stabilise for most of the other population subgroups, however the marked impact of the crisis on migrants and the low-skilled is still evident. Nearly 20% of active migrants from non-EU countries and around 15% of the active low-skilled persons in the EU are unemployed, and although the increase in long-term unemployment has been slowing down, it remains a risk for migrants and low-skilled (in the fourth quarter of 2010 at 8.0% and 7.4% respectively). The impact of the crisis on the risk of poverty or exclusion is beginning to appear in some Member States. Material deprivation and especially its components relative to 'economic strains' reflect the social impact of the crisis. These developments are particularly worrying in the Baltic States, Ireland, Spain, Greece and Hungary.

How have labour costs and productivity progressed recently?

Labour productivity growth in the EU regained its upward momentum, growing by 2.1 % in the first quarter of 2011, if compared to the first quarter of 2010 (Chart 6). Following the economic crisis, labour productivity growth in most EU15 Member States became negative in 2008 and 2009, but in 2010 it became positive in all Member States, except Greece. The latter showed for the first time since the third quarter of 2008 positive productivity growth – all be it at the very low rate of 0.1 % - while Germany, along with countries like Bulgaria, Lithuania, Finland and Slovenia, posted a steady growth (> 3 % in the year to the first quarter of 2011). Developments in the real effective exchange rate (based on unit labour costs) show that notably Germany, Poland and Sweden increased their competitiveness, while several other Member States including Italy, Greece and Spain, sustained losses.

Chart 6: Annual productivity growth in the EU

What is the labour market outlook?

Demand for labour is slowly improving after the crisis and an increasing number of posts are not filled. Firms' hiring plans and expectations are easing, pointing to newly growing uncertainties in the labour market. The restructuring activity reported in the European Restructuring Monitor declined further in April and May 2011. Announced job losses continued to outnumber announced job gains but the gap continues to narrow. Major job creation has been announced in some sectors, including manufacturing and real estate - business activities.

This edition of the Quarterly Review analyses the volunteering sector, linked with the "European Year of Volunteering" and takes a closer look at the situation on the labour markets in Belgium, Denmark, Finland, Greece, Poland, Portugal, Slovenia, Spain and Sweden. Labour markets in Belgium, Finland, Slovenia and Sweden have almost recovered from the crisis, while the situation is more mixed in Denmark and Poland. Conversely, unemployment remains persistently high or even increases in Greece, Portugal and Spain.